Debates on fiscal devolution typically focus upon the rewards, but as the case of Scottish tax devolution shows, the risks are real and require careful management. Politicians on all sides need to be careful what they wish for.
The new fiscal arrangements in place in Scotland represent a devolution of both risk and reward. In doing so they deliver something for each part of this coalition of disparate interests.
To date, most of the attention has been focussed on the ‘reward’ from gaining these powers and being able to exercise them, but the risk element is an integral part of the new fiscal powers and requires much greater attention than it is currently receiving.
The transfer of powers has enabled Holyrood to set different tax policies. This has been the reward of devolution.
But the cost is weaker tax revenues as a result of the underperformance of the tax base. Coupled with a series of costly policy commitments on social security, the Scottish budget for day-to-day devolved services is being squeezed relative to what it would otherwise have been, despite that effort to raise the tax burden on higher earners.